DJ Kuala Lumpur Kepong Berhad Offer Update -2-
In setting out KLK's reply to MPE's Response Document and the reasons why KLK believes MP Evans Shareholders should accept the Increased Offer, KLK wishes to ensure that all relevant facts and data are made available to MP Evans Shareholders so that they may make an informed decision in respect of the Increased Offer.
2. KLK's compelling offer remains highly attractive
KLK urges MP Evans Shareholders to accept the Increased Offer as soon as reasonably practicable in respect of their MP Evans Shares in order to take advantage of the certainty of receiving very substantially more in cash than the price that MP Evans Shares have ever closed at before the commencement of the Offer Period.
The Increased Offer represents a premium of 81 per cent. to the Undisturbed Price. In addition, the Increased Offer represents a premium of 34 per cent. to the highest ever Closing Price of 553.8 pence per MP Evans Share before the commencement of the Offer Period.
The Increased Offer represents an unprecedented opportunity for MP Evans Shareholders to exit their entire stake in full and in cash, in light of the low trading volume in the MP Evans Shares.
3. The MP Evans Valuation is unsubstantiated by relevant market data and current operating conditions
KLK continues to support its highly attractive Increased Offer (implying a value of MP Evans' total planted area per hectare of c. $14,100) and disputes the implied lower value attributed to the Increased Offer by MP Evans in its Response Document.
KLK notes that, in relation to the Indonesian plantation interests of MP Evans (which constitute the majority of the value attributable to the Company), MP Evans did not use precedent sales of Indonesian plantations as comparables in arriving at the MP Evans Valuation but, instead, elected to use precedent sales of Malaysian and Papua New Guinean plantations, which are of an inherently higher value due to the differing operating environments/circumstances in those countries compared to Indonesia.
Precedent sales of majority stakes in Indonesian plantation estates indicate an average enterprise value (“EV”) / planted hectare (“Ha”) of c. $10,285. The Increased Offer implies a value of MP Evans' total planted area per hectare of c. $14,100, a c. 37 per cent. premium to the selected precedent transactions referred to below:
Announcement Target Plantation Estate Acquirer EV/planted
Date Location in Indonesia Ha ($/Ha)
============= ======================= ======================== ======================== ===========
PT Agro Abadi
27-Jun-16 Cemerlag West Kalimantan Genting Plantations 11,630
============= ======================= ======================== ======================== ===========
South Kalimantan,
Central Kalimantan,
West Kalimantan,
PT Golden Plantation South Sumatra, PT JOM Prawarsa
11-May-16 Tbk Riau and Jambi Indonesia 5,288
============= ======================= ======================== ======================== ===========
PT Nusa Persada
Indonesia, PT
Surya Panen
Subur, PT Tempirai
Palm Resources, South Kalimantan, PT Wisesa Inspirasi
PT Rambang Agro South Sumatra Nusantara (subsidiary
10-Feb-16 Jaya and Aceh of Kulim) 8,046
============= ======================= ======================== ======================== ===========
PT Lifere Agro United Malacca
15-Dec-15 Kapuas Central Kalimantan Berhad 15,293
============= ======================= ======================== ======================== ===========
Pacific Agri
Resources Pte
22-Jul-15 Ltd West Kalimantan First Resources 11,930
============= ======================= ======================== ======================== ===========
PT Surya Agro
02-Mar-15 Persada South Sumatra Oriental Holdings 9,521
============= ======================= ======================== ======================== ===========
Average 10,285
======================== ===========
MP Evans Shareholders are therefore urged to note the substantial premium implied by the Increased Offer on an EV per Ha basis to selected precedent transactions.
KLK also notes that the land attributable to the Indonesian smallholder co-operative schemes belongs to the co-operatives and not to MP Evans. In general, once the loans advanced to co-operatives have been repaid, they may sell their produce to any company and may choose to be managed by any plantation operator.
KLK also notes that the value of $81 million attributed to MP Evans' Malaysian properties in the Response Document is almost double the market value which MP Evans attributed to them in its latest audited annual report and accounts for the financial year ended 31 December 2015 (the “2015 Annual Report”):
— “The land is estimated, based on independent advice, to have a value of approximately US$16 million.”
— “The Group's 40% investment in Bertam Properties is currently estimated to be worth in excess of US$30 million.”
The reported book value of MP Evans' 40 per cent. interest in Bertam Properties in the 2015 Annual Report was approximately $15.1 million. This is set against a weak Malaysian property market, with the total volume of transactions for all sectors in the State of Penang (the location of MP Evans' Malaysian properties) in 2015 registering a fall of 15.6 per cent. against 2014 and the value of transactions registering a fall of 15 per cent. Residential transactions, which made up 70.9 per cent. of the total volume of property transactions in 2015 (2014: 72 per cent.), recorded a drop of 16.9 per cent. and 18.5 per cent. in terms of volume and value, respectively, when compared to 2014. However, the outlook for the Penang property market is expected to worsen in the short term (Source: Knight Frank LLP “Malaysia Real Estate Highlights 1H2016” report).
In addition, it is MP Evans' long-term intention to dispose of its small Bertam Estate and its 40 per cent. interest in Bertam Properties to reinvest in Indonesian palm oil. However, to date, MP Evans' management has failed to achieve this, again highlighting the weakness in the Malaysian property market.
Even if MP Evans' Malaysian properties were to be valued at the market value of $46 million set out in the 2015 Annual Report and the net cash of $73 million (as per the Response Document, which disregards the $19 million that has already been depleted through dividends or off-set by disclosed tax charges, with a further $9 million committed to payment of the increased dividend) were to be used in calculating the implied value of MP Evans' total planted area per hectare represented by the Increased Offer, that implied value would be c. $12,500, still a substantial 22 per cent. premium to the average EV / planted Ha value for the selected precedent transactions referred to above.
4. The market has never recognised the MP Evans Valuation
KLK notes that the Closing Price per MP Evans Share on 25 November 2016, the date on which the Response Document was published, remained unchanged at 681 pence per MP Evans Share compared to the prior Business Day.
Furthermore, KLK notes that the price per MP Evans Shares since publication of the Response Document has remained well below the Increased Offer Consideration.
The MP Evans Valuation is therefore illusory as it is not supported by the market's reaction following the publication of the Response Document.
5. Promises to bolster shareholder value – Too little too late
(MORE TO FOLLOW) Dow Jones Newswires
December 01, 2016 05:58 ET (10:58 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Since KLK published its Increased Offer, MP Evans has stated an intention to increase its dividend in a belated attempt to improve financial returns for MP Evans Shareholders. Even based on the intended aggregate 15.0 pence dividend for 2016, the implied dividend yield based on the MP Evans Valuation is still only 1.4 per cent.
KLK would also draw MP Evans Shareholders' attention to the fact that the MP Evans Valuation represents a high price-to-earnings ratio of 79.2x. Notwithstanding improved performance based on crop increases and higher commodity prices, this P/E ratio would still be high.
6. The actions and omissions of the MP Evans Board do not support its belief in the MP Evans Valuation
In assessing the weight to be given to the MP Evans Valuation, KLK urges MP Evans Shareholders to consider that:
— MP Evans has not sought to repurchase MP Evans Shares at a time when the claimed MP Evans Valuation was far in excess of the market price of MP Evans Shares, with the perceived potential to create substantial value for MP Evans Shareholders, as a whole; and
— only since the Increased Offer was made has the Board of MP Evans written to MP Evans Shareholders to explain its implied value for MP Evans Shares at more than two and a half times the Undisturbed Price.
7. MP Evans Shareholders are urged to accept the Increased Offer
The Board of KLK believes that achieving any value per MP Evans Share in excess of the Increased Offer Consideration is subject to a high degree of uncertainty and would be unprecedented based on historic trading volumes in MP Evans Shares. By contrast, the Increased Offer represents an attractive value proposition at a substantial premium with a high degree of certainty.
MP Evans Shareholders are therefore urged to accept the Increased Offer in respect of their MP Evans Shares.
MP Evans Shareholders should note that the Increased Offer is conditional only on valid acceptances being received by the First Closing Date in respect of more than 50 per cent. of the MP Evans Shares, as more fully described in the Offer Document.
The First Closing Date of the Increased Offer is 9 December 2016 and there can be no certainty that this will be extended*.
The Increased Offer is final and is not capable of being increased, save that KLKI reserves the right to increase the price per MP Evans Share payable pursuant to the terms of the Increased Offer in the event of: (i) a public announcement of the existence of a new offeror or potential offeror, whether publicly identified or not; or (ii) the recommendation of such an increased offer by KLK or KLKI by the Board of MP Evans.
* If the Increased Offer becomes, or is declared, unconditional as to acceptances, it must remain open for not less than a further 14 days.
8. Acceptance of the Increased Offer
To accept the Increased Offer in respect of MP Evans Shares held in certificated form (that is, not in CREST), you should complete, sign and return the Form of Acceptance that was sent to MP Evans Shareholders with the Offer Document so as to be received by the Receiving Agent, Capita Asset Services, by no later than 1.00 p.m. (London time) on 9 December 2016 in accordance with the procedures set out in the Offer Document.
Acceptances in respect of MP Evans Shares held in uncertificated form should be made electronically through CREST. You should ensure that an Electronic Acceptance is made by you or on your behalf and that settlement occurs by no later than 1.00 p.m. (London time) on 9 December 2016 in accordance with the procedures set out in the Offer Document. CREST sponsored members should refer to their CREST sponsor as only CREST sponsors will be able to send the necessary TTE instruction to Euroclear.
9. Sources and bases of information
Save as set out in this announcement, the following constitute the sources and bases of information referred to in this announcement:
A. Any references to the value of the Increased Offer for the entire issued and to be issued ordinary share capital of MP Evans are to 56,134,719 MP Evans Shares based on: (i) the number of MP Evans Shares currently in issue being 55,739,719; and (ii) the number of MP Evans Shares subject to outstanding options and/or awards granted under the MP Evans Share Schemes being 395,000, in each case, such numbers being based on information publicly available to KLKI as at the date of this announcement.
B. Prior to the commencement of the Offer Period, the highest Closing Price that the MP Evans Shares have closed at was 553.8 pence on 10 September 2012.
C. The “Undisturbed Price” is the volume weighted average Closing Price of 408.5 pence per MP Evans Share for the twelve months ended on 24 October 2016 (being the last Business Day prior to the commencement of the Offer Period).
D. The comparable transactions relied upon by MP Evans are set out in the valuation report prepared by Khong & Jaafar dated 21 November 2016 on page 25 and refer to:
— Pontian United Plantations Berhad's acquisition of Golden Land Berhad in Beluran, Malaysia as set out in an article by Reuters on 7 June 2015 (http://www.reuters.com/finance/stocks/GOLD.KL/key-developments/article/3225853).
— Sime Darby Plantation Sdn Bhd's acquisition of New Britain Palm Oil Limited in Papua New Guinea as set out in the announcement on the Sime Darby Website on 2 March 2015 (http://www.simedarbyplantation.com/media/press-release/sime-darby- plantation-completes-nbpol-acquisition).
— IOI Plantation Sdn Bhd's acquisition of Unico-Desa Plantations Berhad in Sabah, Malaysia as set out in the Borneo Post article on 4 October 2013 (http://www.theborneopost.com/2013/10/04/ioi-corp-to-benefit-from-unico-desa- takeover/).
— Felda Global Ventures Holdings Berhad's acquisition of Pontian Untied Plantations Berhad in Sabah, Malaysia as set out in the Felda Global Ventures press release on 1 October 2013 (http://ir.chartnexus.com/fgv/website_HTML/attachments/attachment_39224_ 1384149981.pdf).
E. Analysis of publicly available precedent transactions of majority stakes (>50 per cent.) in Indonesian plantation estates with an enterprise value of greater than $25 million since 1 January 2015 is set out below: